JPMORGAN: The 'Slowdown In Consumer Spending Has Arrived'

Last week's release of personal spending data revealed that
spending rose 0.2 percent in February, at the same pace as in
January.

When adjusted for inflation, though, the data are less
encouraging.

In a note to clients, JPMorgan economist Robert Mellman declares
that the "consumer spending slowdown is here," saying consumers
are beginning to feel the effects of the payroll tax cut expiry
and rising gas prices.

Mellman writes:

Slowdown in consumer spending has arrived: The
first-round effects of the tax increases should mainly affect
consumer spending, and the forecast looks for real consumer
spending to slow to only 1.0% growth at a seasonally adjusted
monthly rate this quarter. This forecast appears to be tracking.
Real consumer rose only 0.1% at a seasonally adjusted annualized
rate in January following a downward-revised 0.1% increase in
December as well.

Moreover, the tentative forecast looks for real consumer spending
to decline 0.3% in March. Nominal consumer spending does not
appear to have cracked in February. At least this is the message
from unit auto sales, which rose to a 15.4 million pace. But real
spending in February will be depressed by a high inflation
reading. The PCE price index for February appears to have
increased 0.5% (and the CPI 0.7%), reflecting the increase in the
price of gasoline.

The chart below provides a nice visual summary of what Mellman
sees happening right now:

BEA, J.P.
Morgan

On the other hand, Mellman points out that other economic
indicators, like business investment, housing, and manufacturing,
are all looking pretty good.